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Country Report

India

September 2008

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India 1

Monthly Report September 2008 www.eiu.com © The Economist Intelligence Unit Limited 2008

India

Executive summary 2 Highlights

Outlook for 2008-09 3 Political outlook 4 Economic policy outlook 5 Economic forecast

Monthly review: September 2008 9 The political scene 11 Economic policy 13 Economic performance

Data and charts 15 Annual data and forecast 16 Quarterly data 17 Monthly data 19 Annual trends charts 20 Monthly trends charts

Country snapshot 21 Political structure

Editors: Anjalika Bardalai (editor); Gerard Walsh (consulting editor)

Editorial closing date: August 22nd 2008

All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

2 India


Executive summary

Highlights

September 2008

• By winning a crucial vote of confidence, the ruling Congress-led coalition, the United Progressive Alliance (UPA), will be better able to call the next general election, which must be held by May 2009, at a time of its own choosing.

• Although the next government is likely to be a coalition led by Congress or the Bharatiya Janata Party (BJP), an alliance of regional parties headed by the leader of the Bahujan Samaj Party (BSP), Mayawati, is also a possibility.

• India!s relations with Pakistan will continue to be fraught, although both countries will remain committed to the peace process over the disputed region of Kashmir.

• After several years of fiscal consolidation the budget deficit will widen in 2008/09 (April-March), as the government grapples with its generous spending programmes amid a slowing economy.

• The Reserve Bank of India (RBI, the central bank) will remain under pressure to raise interest rates further in 2008. In the absence of other policy options, the onus will remain squarely on monetary policy to tackle inflation.

• India!s economic prospects will be damaged by higher borrowing and input costs and slower external demand growth. Real GDP growth is forecast to moderate from 9% in 2007/08 to 7.5% in 2008/09 and 6.8% in 2009/10.

• Following the surge in inflation in the first half of 2008, the Economist Intelligence Unit forecasts that wholesale price inflation will average 9.9% in 2008 and 7% in 2009.

• Violence erupted in the state of Jammu and Kashmir, as Muslims protested against the government!s decision to transfer land to a Hindu shrine. After the government had reversed the decision, Hindus launched their own protests.

• The International Atomic Energy Agency approved the US-India civilian nuclear co-operation deal on August 1st. The agreement must now be approved by the Nuclear Suppliers Group.

• Bomb blasts hit Bangalore on July 25th and Ahmedabad on July 26th. In the wake of the terrorist attacks a renewed debate broke out about India!s anti-terrorism laws, notably the Prevention of Terrorism Act.

• On August 14th the government approved a pay rise for civil servants that exceeded the recommendations of a government panel.

• Wholesale price inflation reached a 16-year high of 12.6% in early August. Food-price inflation continues unabated.

• Foreign direct investment inflows surged to US$10bn in the April-June quarter.

Outlook for 2008-09

Monthly review

India 3


Outlook for 2008-09 Political outlook

India!s ruling coalition, the United Progressive Alliance (UPA), won a crucial vote of confidence on July 22nd. The vote was triggered when the Left Front parties withdrew their parliamentary support for the UPA, objecting to the government!s decision to push ahead with a controversial nuclear co-operation deal with the US. By winning the vote, the Indian National Congress (which heads the government at the national level) is in a much stronger position to call the next general election at a time of its own choosing. The election, which must be held by May 2009, is almost certain to return another coalition government, as neither Congress nor the main opposition party, the Bharatiya Janata Party (BJP), is strong enough to win a majority alone. Although the next government is likely to be a Congress-led or a BJP-led coalition, an alliance of regional parties headed by the Bahujan Samaj Party (BSP) leader, Mayawati, is also a possibility. Each combination, however, would be beset by contradictions, ranging from personality clashes to divergent approaches to economic policy.

In the past few months Congress!s re-election prospects have deteriorated sharply. Economic woes are largely to blame: inflation is accelerating at a double-digit rate, causing widespread hardship, and GDP growth is slowing. Although the government!s victory in the confidence vote will enable it to control the timing of the next election, it does not mean that the UPA is on course to win re-election at the national level. Its success with the nuclear deal will count for little with voters who are experiencing hard times economically. The UPA will also be limited in its policymaking abilities for the remainder of its term. Many commentators have focused on the idea that the Left Front was the main obstacle to the UPA!s reform ambitions. In theory the prime minister, Manmohan Singh, is now free to push ahead with economic liberalisation. But this analysis is probably too optimistic. For one thing, the UPA has only a few months in which to restore its reformist credentials. With a general election fast approaching, the temptation will be to focus on populist giveaways that would please voters, but would do little to tackle India!s underlying economic challenges.

Building and managing uneasy coalitions has become the norm in India!s complicated political scene, which is deeply divided by caste and religion. Parties allied within coalitions at the centre or in certain states remain bitter rivals in other states, and political expediency increasingly triumphs over principle. The key to Congress!s success in winning the vote of confidence was its newly forged alliance with the Samajwadi Party (SP), a regional party from the politically important state of Uttar Pradesh. Congress!s alliance with the SP could help to counter the growing political clout of the BSP, which appeals directly to Congress!s traditional voter base. The BSP is not only looking to build an alliance with regional parties; it could also play a pivotal role in alliances with the BJP or the Left Front. Mayawati has emerged as one of the strongest organisers of the opposition to the ruling coalition, and her ambition is to become the first Dalit (an "untouchable" in India!s caste system) prime minister.

Domestic politics

4 India


The recent state elections have continued the trend of parties winning in their individual strongholds, with few national trends emerging as yet. The exception to this was the Karnataka poll in early May. The BJP!s surprise victory in the Karnataka state assembly election was hugely significant, because it was the first time that the party was able to form a state government in the south of the country (the BJP!s base is in the Hindi-speaking north). A strong showing by the BJP in other state polls might finally allow it to claim to be a "pan-Indian" party. The BJP is actively pursuing the voter base of Congress (in particular, ethnic minorities and Muslims) and is benefiting from unhappiness with Congress!s perceived inability to tackle the country!s economic troubles. Although the BJP is still far from a unified force, it is likely to profit not only from the worsening economic conditions that seem certain to mar the final months of the UPA government!s term, but also from anti-incumbency sentiment that characterises Indian voting patterns. The BJP will have to soften its reputation as a hardline Hindu nationalist party to perform well at the national level, but its victory in Karnataka suggests that overcoming this perception is within its powers.

Relations with the US continue to be dominated by the Indo-US civilian nuclear co-operation deal, which would, in effect, make India an internationally recognised nuclear power without it being a party to the nuclear Non-Proliferation Treaty. Following its success in the confidence vote, the UPA government will push ahead with the finalisation of the deal. Approval from the International Atomic Energy Agency was obtained on August 1st. India now needs to secure a waiver from the rules of nuclear commerce from the 45-member Nuclear Suppliers Group (NSG). The US Congress would then have to give its final approval before the US president, George W Bush, leaves office in January 2009. Whether the deal for which Mr Singh risked his government!s collapse will go through remains open to question. However, both countries still have strong reasons to build a strategic partnership in coming years.

India!s relations with Pakistan will remain fraught, although both countries will remain committed to continuing the peace process over the disputed region of Kashmir, which both countries claim in full but rule in part. A recent spate of bombings against Indian targets, including the Indian embassy in the Afghan capital Kabul, has once again raised Indian concerns about the role of Pakistan!s intelligence organisation, the Inter-Services Intelligence (ISI). Mr Singh met his Pakistani counterpart, Yusuf Raza Gilani, at the South Asian Association for Regional Co-operation (SAARC) summit at the beginning of August. Mr Gilani undertook to conduct an investigation into the Kabul bombing, but it remains a moot point how much control his government has over the ISI.

Economic policy outlook

After several years of fiscal consolidation, facilitated by strong economic growth, the budget deficit will widen in fiscal year 2008/09 (April-March), as the government grapples with its generous spending programmes amid a slowing economy. Government expenditure is budgeted to rise by 19% to Rs2.4trn (US$60.8bn) in 2008/09 (April-March). Meanwhile, the acceleration in inflation has led the Reserve Bank of India (RBI, the central bank) to tighten monetary

International relations

Policy trends

India 5


policy sharply in the last few months. After two unscheduled rises in June, the RBI raised its repurchase (repo) rate"the rate at which the central bank adds funds to the banking system"by another 50 basis points, to 9%, on July 29th. The Economist Intelligence Unit expects the RBI to increase rates by a further 50 basis points in the second half of 2008, before it can start to lower them in the second half of 2009.

Large spending increases on health, education and rural infrastructure are part of the government!s strategy to spread the benefits of economic growth to India!s poor. However, a number of factors will scupper the government!s hopes of a further reduction in the fiscal deficit in 2008/09; these include the implementation of the Sixth Pay Commission!s recommendations on public-sector pay increases, the growing cost of subsidies for food and fertilisers, slower growth in corporate tax revenue as overall economic growth moderates, pre-election spending, and lower revenue from import duties, as import taxes on commodities have been cut to alleviate inflationary pressures. As a result, we expect the government!s expansionary spending commitments to widen the deficit to 4.3% of GDP in 2008/09, above its ambitious target of narrowing the deficit further to 2.5% of GDP.

The central bank will remain under pressure to raise interest rates further, despite the sharp tightening of monetary policy in June and July. The RBI!s more aggressive approach reflects its growing concern about the sudden acceleration in wholesale price inflation to nearly 13% year on year in early August. In the absence of other policy options, such as fiscal tightening or currency appreciation, the onus will remain squarely on monetary policy to tackle inflation. Recognising its predicament, the RBI in its policy statement on July 29th not only raised the central bank!s inflation target (measured by wholesale prices) for 2008/09 to 7% (from 5-5.5%), but also changed its economic growth forecast to 8% (from 8-8.5%). In the second half of 2008 the RBI will increase the repo rate from 9% to 9.5%, and the reverse repo rate (the rate at which it drains funds from the system) from 6% to 6.5%. Monetary easing will not occur until 2009, when we expect inflationary pressures to subside. We forecast two cuts of 25 basis points each in the RBI!s key policy rates in the second half of next year.

Economic forecast

International assumptions summary (% unless otherwise indicated)

2006 2007 2008 2009

GDP growth World 5.0 4.8 3.8 3.3

US 2.8 2.0 1.5 0.5

China 11.6 11.9 9.8 9.0

EU27 3.1 2.9 1.5 1.1

Exchange rates US$ effective (2000=100) 92.4 88.8 81.6 82.9

¥:US$ 116.2 117.8 105.5 101.8

US$:� 1.26 1.37 1.54 1.52

Fiscal policy

International assumptions

Monetary policy

6 India


International assumptions summary (% unless otherwise indicated)

2006 2007 2008 2009

Financial indicators US$ 3-month commercial paper rate 5.03 5.06 2.60 2.75

¥ 3-month Gensaki rate 0.28 0.61 0.73 0.88

Commodity prices Oil (Brent; US$/b) 65.4 72.7 110.0 91.0

Gold (US$/troy oz) 604.5 696.7 895.7 848.8

Food, feedstuffs & beverages (% change in US$ terms) 16.1 30.9 46.2 -1.7

Industrial raw materials (% change in US$ terms) 49.6 11.2 5.1 -8.5

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

Global economic growth (at purchasing power parity exchange rates) is forecast to slow from an estimated 4.8% in 2007 to 3.8% in 2008, before decelerating further, to 3.3%, in 2009. The less rapid rates of expansion expected in the forecast period will stem mainly from a significant slowdown in US GDP growth, but also from weaker growth in the EU. The US is India!s biggest export market, and recessionary conditions there will hurt some Indian exporters, for example in the textile sector. However, other major export markets, notably China, will remain relatively buoyant. Global trade is forecast to expand by an average of 5% per year in 2008-09. International oil prices will ease from US$110/barrel in 2008 to US$91/barrel in 2009, thereby reducing inflationary pressures and the size of the oil import bill.

Gross domestic product by expenditure (Rs bn at constant 1999 prices where series are indicated; otherwise % change year on year; fiscal years beginning Apr 1st)

2006a 2007 a 2008b 2009b

Private consumption 18,264.9 19,778.8 20,913.4 22,085.9

7.1 8.3 5.7 5.6

Public consumption 3,064.2 3,277.5 3,638.0 3,965.4

6.2 7.0 11.0 9.0

Gross fixed investment 9,543.5 10,856.2 12,075.9 13,223.1

15.1 13.8 11.2 9.5

Final domestic demand 30,872.6 33,912.5 36,627.3 39,274.4

9.4 9.8 8.0 7.2

Stockbuilding 640.9 685.4 700.0 800.0

0.1c 0.1 c 0.0c 0.3c

Total domestic demand 31,513.5 34,597.9 37,327.3 40,074.4

9.2 9.8 7.9 7.4

Exports of goods & services 6,412.3 6,896.4 7,472.1 8,153.9

18.9 7.5 8.3 9.1

Imports of goods & services 7,709.6 8,300.1 9,049.9 9,998.6

24.5 7.7 9.0 10.5

Foreign balance -1,297.3 -1,403.7 -1,577.8 -1,844.7

-1.8c -0.3 c -0.5c -0.7c

GDP 31,173.7 33,987.7 36,549.5 39,029.7

9.7 9.0 7.5 6.8

a Actual. b Economist Intelligence Unit forecasts. c Contribution to real GDP growth (as a percentage of real GDP in the previous year).

Economic growth

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India!s economic prospects will be damaged by higher borrowing and input costs, weaker consumer sentiment and slower external demand growth. We expect real GDP growth to moderate from 9% in 2007/08 to 7.5% in 2008/09 and 6.8% in 2009/10. Although the slowdown has so far been restricted to the industrial sector, it will spread to the services sector, as the squeeze on costs becomes more pervasive and demand slackens. Despite slower global growth, the slowdown in India will owe far more to domestic factors than to external ones. India!s level of trade dependency is still among the lowest in Asia, so the forecast slowdown in real GDP growth primarily reflects the effect of tighter monetary policy to combat inflationary pressures. Downward revisions to our growth forecast are possible if domestic inflation is not brought under control, or if global growth is slower than expected.

Investment will continue to be the fastest-growing component of GDP, despite a slowdown in the rate of investment growth from 13.8% in 2007/08 to 9.5% in 2009/10. Foreign direct investment will remain relatively buoyant, and local companies will continue to reinvest profits. Private consumption growth is forecast to average 5.7% per year in 2008/09-2009/10, a sharp slowdown from the 8.3% increase in 2007/08, as inflation erodes real income growth. Government consumption growth will average 10% per year, reflecting the government!s generous spending plans. Net exports will exert a drag on economic growth, as imports of goods and services (on a national accounts basis) will continue to rise more quickly than exports. In 2008/09-2009/10 growth in exports of goods and services will average 8.7% a year, but growth in imports will average 9.8%.

Wholesale price inflation surged to a 16-year high of nearly 13% year on year in early August, pushed up primarily by higher food, oil and other commodity prices. Monetary policy will need to be tightened further for the RBI to meet its revised inflation target for 2008/09 of 7%. We forecast that consumer price inflation will average 7.1% in 2008 and 6.2% in 2009. Although the RBI is hopeful that the worst of the externally driven inflationary surge is over, it will remain on alert for domestic inflationary risks such as higher food prices, rising wages or a wider than expected fiscal deficit. Currently, the RBI!s remit is to promote both growth and price stability, but the inflationary surge could increase calls for it to adopt inflation-targeting as its core monetary policy objective"a move that would require exchange rates to be determined entirely by market forces.

The relative weakness of the rupee against the US dollar since May reflects rising inflation, portfolio capital outflows, weakening industrial activity and a widening current-account deficit. We therefore expect the rupee to depreciate slightly, by 0.8%, to average Rs41.7:US$1 in 2008. The rupee is forecast to strengthen slightly in 2009, averaging Rs41:US$1, as India remains one of the world!s fastest-growing economies and inflation subsides. However, the rupee could be vulnerable to a further correction if inflation is not brought under control or if the economy slows more sharply than expected.

Inflation

Exchange rates

8 India


Firm, albeit slowing, domestic industrial activity, which will underpin imports, and a surge in oil prices"India imports about 75% of its oil requirement"will cause the current-account deficit to widen in US dollar terms to US$36.7bn (equivalent to 2.9% of GDP) in 2008, from US$12.1bn (1.1% of GDP) in 2007. The current-account deficit will fall slightly in 2009 owing to significantly lower oil prices, reaching US$35.2bn (2.4% of GDP). Although the trade deficit will increase steadily during the forecast period, from an estimated US$79.1bn in 2007 to US$108.2bn in 2009, growth in net current transfers and services exports will mitigate the effect on the overall current-account position.

Forecast summary (% unless otherwise indicated)

2006 a 2007 a 2008b 2009b

Real GDP growthc 9.7 9.0 7.5 6.8

Industrial production growth 10.5 9.9 5.9 7.3

Unemployment rate (av) 7.6 d 7.2 d 6.8 6.4

Consumer price inflation (av) 6.2 6.4 7.1 6.2

Consumer price inflation (year-end) 6.9 6.1 6.6 5.7

Short-term interbank rate 11.2 13.1 14.1 14.2

Government balance (% of GDP)c -3.4 -2.8 -4.3 -4.0

Exports of goods fob (US$ bn) 123.0 151.3 181.4 203.6

Imports of goods fob (US$ bn) -185.0 -230.5 -285.1 -311.9

Current-account balance (US$ bn) -9.5 -12.1 -36.7 -35.2

Current-account balance (% of GDP) -1.0 -1.1 -2.9 -2.4

Total foreign debt (year-end; US$ bn) 135.1 149.2 d 166.6 180.5

Exchange rate Rs:US$ (av) 45.31 41.35 41.67 41.00

Exchange rate Rs:¥100 (av) 38.98 35.11 39.51 40.29

Exchange rate Rs:� (av) 56.89 56.59 64.17 62.32

Exchange rate Rs:SDR (av) 66.66 63.48 67.69 66.29

a Actual. b Economist Intelligence Unit forecasts. c Fiscal years (beginning April 1st of year indicated). d Economist Intelligence Unit estimate.

External sector

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Monthly review: September 2008

The political scene

The political scene has been dominated by a surge in violence in the Indian-administered state of Jammu and Kashmir, where dozens of people have been killed since June in the worst clashes between Hindus and Muslims in two decades. The clashes followed the state government!s decision in June to allot state land to a Hindu shrine at the Amarnath cave in the Muslim-majority Kashmir valley. Hundreds of thousands of Hindus visit the shrine, devoted to the Hindu god Shiva, every year. The state government reversed the order on July 1st after demonstrations by Muslims, who accused the Indian government of planning to build Hindu settlements in India!s only Muslim-majority state in an effort to change the demographic balance in the region.

However, the withdrawal of the order in turn triggered large protests in the Hindu-majority Jammu region in the south of the state, with Hindu organisations demanding that the land be given to pilgrims, as originally promised. On August 15th, six weeks into the communal clashes, thousands of protesters lined the streets of Srinagar, the state capital, and protesters burned the Indian flag. Anti-Indian sentiment is strong in Kashmir, where numerous militant groups have been fighting for independence from India or a merger with neighbouring Pakistan since 1989. On August 18th thousands of Muslims marched to the UN office in Srinagar to request its intervention on behalf of Muslims in the region.

The surge in violence comes as an enormous embarrassment for the government at the national level, which until recently had emphasised that violence in the troubled state was on the wane. Worryingly, the violence has coincided with what India says are increasing incursions into Indian-administered Kashmir by militants from across the Line of Control, which separates Indian- and Pakistani-controlled Kashmir.

The immediate consequence of the troubles is that the election for the state!s legislative assembly, scheduled for October, is unlikely to be held on time. This is despite calls from the state!s governor, N N Vohra, who has been performing the functions of chief minister in the state since the state legislative assembly was dissolved on July 10th, to go ahead with the election. More fundamentally, the federal government will now be under greater pressure to find a solution to the Kashmir problem. The matter has already become an election issue at the national level. L K Advani, the prime ministerial candidate of the Hindu-nationalist Bharatiya Janata Party (BJP), has said that those opposed to the Amarnath land transfer were questioning Jammu and Kashmir!s status as an integral part of the country. Right-of-centre political parties, like the BJP, demand the withdrawal of Article 370 of the Indian constitution (which grants Kashmir a special status) so as to integrate the state with the rest of India. But this seems impractical and would clash with the views of those"including many in the Indian National Congress party (Congress, which leads the government at the federal level)"who recognise the alienation of Muslims in the state and are

Calls for an autonomous Kashmir trouble politicians

10 India


considering negotiating with all groups, including the separatists, on a platform of increasing autonomy for the state.

The Times of India, a mainstream newspaper, broke a taboo when it argued in an editorial on August 21st that autonomy for Kashmir might be the only viable option to resolve the dispute. It served as a reminder that perhaps only a radical rethink of India!s existing policies might bring peace to the troubled region of Kashmir.

On August 1st the US-India civilian nuclear co-operation deal took yet another step forward when the International Atomic Energy Agency (IAEA), the UN!s nuclear watchdog, approved an inspection plan for India!s declared civilian nuclear energy plants. But after the coalition government narrowly won a vote of confidence over the deal in the Indian parliament in July, the real obstacle to the deal!s implementation is the unanimous approval by the 45-member Nuclear Suppliers Group (NSG), which would allow exports of nuclear fuel and technology for civilian use to India. The approval is necessary if the nuclear deal is to proceed to the US Congress for final ratification.

The implications of this approval are profound. The US is asking the NSG to allow, for the first time, the transfer of nuclear technology to a country that has not signed the nuclear Non-Proliferation Treaty. The non-proliferation lobby has therefore warned that the inclusion of India in the nuclear club would trigger a nuclear arms race with an increasingly unstable Pakistan. They also point out that approval by the NSG"formed in 1975 in response to India!s nuclear test the previous year"would contradict the very purpose of the group: to limit the export of nuclear equipment, materials and technology.

In the negotiations ahead of the NSG meeting on August 21st-22nd seven countries"Austria, Sweden, Norway, Switzerland, Ireland, the Netherlands and New Zealand"sought amendments to the NSG draft. These include the cessation of all nuclear trade in case India tests a nuclear weapon and a review of the status granted to India in case it does not allow inspections at its nuclear facilities. None of these conditions is acceptable to India. As a result, the meeting ended inconclusively, and the group is set to meet again on September 4th. After overcoming domestic opposition to the deal, the Indian government must now hope that the group will agree to a waiver that will rewrite the rules of nuclear commerce.

Bomb blasts hit Bangalore, the capital of the state of Karnataka and India!s information-technology hub, on July 25th. Another series of explosions occurred in Ahmedabad, the capital of Gujarat state, the following day, leaving a total of 54 people dead over the two days. The police have said that the deadly attacks were carried out by an obscure group called Indian Mujahideen, a splinter group of the banned Students Islamic Movement of India (SIMI). The attacks have triggered a renewed debate over the state!s response to Islamist terrorism. Over 1,100 people have died in 69 Islamist attacks since 2000, according to India Today, a weekly news magazine. Unlike in the past, when the government was quick to put the blame on militants based in neighbouring Pakistan and Bangladesh, the authorities now admit that the threat is mostly

The nuclear deal faces its next hurdle

Bomb blasts trigger a debate over the response to terrorism

India 11


home-grown. The recent attacks"only the latest in a string of attacks this year"are likely to lead to a review of existing anti-terror laws. Senior politicians believe that a federal authority should be created to deal with the threat. But Congress and the BJP are divided over how to deal with the issue. The opposition BJP is calling for the reinstatement of the Prevention of Terrorism Act (POTA), a controversial anti-terror law that the government abolished in 2004. Congress has defended the repeal of the draconian law, which it says was open to misuse. It has also said that it would continue to withhold presidential approval to an anti-terror law enacted by the Gujarat state assembly in 2004.

Economic policy

After raising its benchmark interest rate, the repurchase (repo) rate, by 125 basis points in June and July, the Reserve Bank of India (RBI, the central bank) left interest rates unchanged in August, despite a further surge in inflation (as measured by the wholesale price index) to a 13-year high of 12.6% year on year in early August. Growth in the broad money supply (M3) slowed to 19.6% year on year on August 1st, down slightly from 20% two weeks earlier. A former chairman of the prime minister!s Economic Advisory Council, C Rangarajan, has said that annual money supply growth of 17% would be needed to stabilise inflation. Moreover, there are many other reasons to argue in favour of a tighter monetary policy (for example, fiscal profligacy ahead of the general election, as demonstrated by the waiver of farmers! loans, a rise in civil servants! wages and tax cuts). But other interested parties"notably firms that have seen their margins dwindle because of rising input costs"are lobbying for lower borrowing costs.

However, it appears that the central bank is prepared to wait for the outcome of the harvest"arguably the single most important factor for the immediate inflation outlook, as food has a heavy weighting in the inflation indices. A bumper harvest would greatly reduce the need for further monetary tightening"but this is not guaranteed. According to the Meteorological Department in New Delhi, the cumulative rainfall in the first half of the monsoon season (June-September) was 2% less than the long-term average, and the distribution was highly uneven. Another factor that explains the RBI!s reluctance to raise interest rates yet again has been a marked fall in oil prices: the crude oil basket for India fell from a peak of US$142/barrel on July 3rd to US$108/barrel on August 15th.

On August 14th the government approved higher wages for 5m government workers, insisting that the move would not be inflationary and would not lead to an overshooting of the fiscal deficit target for fiscal year 2008/09 (April-March). The pay package will cost US$5.2bn in 2008/09 and will raise the government!s future annual wage bill by an estimated US$4.2bn. The pay rise exceeds the recommendations made by a government-appointed pay panel, the Sixth Pay Commission, by 40%, or Rs110bn (US$2.5bn). It will be effective from January 2009, and the government will also make back payments totalling US$7bn, in two tranches"40% of the total in 2008/09, and the remaining 60% in 2009/10. The government also raised transport allowances by 33-50%, and the annual increment in salaries from 2.5% to 3%.

The central bank keeps interest rates on hold

The government increases wages for 5m employees

12 India


The move came one day after the influential prime minister!s Economic Advisory Council had warned that the central government budget deficit target for 2008/09 would be exceeded and that growing off-budget liabilities, estimated at 5% of GDP, posed a threat to the health of the public finances. The government aims to reduce the central fiscal deficit to 2.5% in 2008/09. The last time India raised pay for federal employees was in 1997, when a near 40% increase caused the central government budget deficit to reach 5.8% of GDP.

Meanwhile, wage growth in the private sector is set to slow in 2008 and 2009, according to Hewitt Associates, a human resources consultancy. Average salary increases are set to slow from 15.1% in 2007 to 14.8% and 13.9% in 2008 and 2009 respectively, according to a survey of 150 major Indian firms. In recent years wage increases in India have been among the highest in the world.

The government has signalled that it will not implement the recommendations of the Chaturvedi Committee, a government-appointed panel set up to review India!s fuel pricing. The committee had recommended raising the retail price of petrol by Rs2.50 (5.7 US cents) per litre per month until March 2009 and that of diesel by Rs0.75 per litre per month until 2010 to eliminate subsidies on the two fuels. The panel also proposed that the government levy a Rs2 per litre tax on diesel in large cities. If implemented, the proposals would have gone a long way towards remedying the current subsidy regime and limiting the issue of more government debt in the form of oil bonds. However, government officials acknowledge that the move would not only be inflationary, but that it would also amount to political suicide, given that the next general election must be held within nine months. The financial health of India!s state-run oil companies has been threatened by large fuel subsidies. For example, the Oil and Natural Gas Corporation (ONGC), the country!s largest oil and gas firm, paid Rs220bn to state-run refineries in 2007/08 to cover their losses. In the first quarter of 2008/09 alone this figure reached almost Rs100bn. The government is now thought to be contemplating other ways of improving the oil companies! financial health, but the most likely outcome is that the state will continue to subsidise the Indian consumer (at least for the foreseeable future).

The Telecommunications Regulatory Authority of India (TRAI), India!s telecoms regulator, has recommended the removal of all restrictions on Internet telephony, paving the way for more competition and cheaper phone calls in the country. Under the proposed new rules, which will have to be approved by India!s Department of Telecommunications, calls made over the Internet will be allowed to be received on telephones rather than just computers. The move is expected to push down prices and boost connectivity, particularly in rural India. The liberalisation is also likely to curb a growing illegal market of these services.

The regulator is thought to have been frustrated with mobile-phone and fixed-line service providers, which were allowed to offer unrestricted Internet telephony, but "did not make moves to introduce this service". TRAI has said that service providers were opposed to opening up Internet telephony because they feared a reduction of voice traffic on their networks. The announcement is likely to trigger intense lobbying by mobile operators, which are fiercely opposed to the move. The Cellular Operators Association of India, the body

The government rejects fuel price hike recommendations

Authorities pave the way for cheaper phone calls

India 13


representing all operators of Global Systems for Mobile Communications (GSM), has already demanded that Internet service providers must be charged licence fees before offering Internet telephony services. India has only 11m Internet subscribers (compared with about 326m mobile and landline phone connections), and the regulator has said that liberalisation of the sector would boost the spread of new technologies to the benefit of the consumer.

Economic performance

An influential government panel, the prime minister!s Economic Advisory Council, has reduced its growth forecast for 2008/09 from 8.5% to 7.7%, saying that expansion in all sectors of the economy"agriculture, industry and services"would slow further. The panel forecasts that wholesale price inflation will rise to 13% year on year before moderating. It expects industrial production growth to slow amid rising input costs, higher borrowing costs and a slowing global economy. The council highlights two vulnerabilities of the Indian economy. First, it expects the current-account deficit to hit an all-time high of 3.2% of GDP in 2008/09. Second, it warns that off-budget liabilities"for oil, food and fertiliser"would rise to 5% of GDP, about twice the budgeted fiscal deficit.

The slowdown in the industrial sector continued in June, according to the latest data from the Central Statistical Organisation. Factory output, as measured by the index of industrial production, grew by 5.4% year on year in June"almost half the rate seen a year earlier. Soaring inflation, rising borrowing costs and slowing consumer demand were behind the moderation. The data show that the production of capital goods"an indicator of investment and future capacity"grew by 5.6% in June; this relatively slow growth rate was at odds with companies! own predictions of continued strong investment demand. Output of consumer durables (such as automobiles and air conditioners) showed a mild recovery. However, more recent data from the Society of Indian Automobile Manufacturers (SIAM) show that passenger-car sales fell by 1.7% year on year in July"the first decline in more than two-and-a-half years. More than one-half of vehicles sold in India are bought on credit, so rising borrowing costs"and a fuel price hike in June"have dented sales, which in turn has hit car manufacturers. According to SIAM, the government!s target of tripling the volume of India!s car market by 2015 (to 3m vehicles produced annually) could now be at risk.

Inflation, as measured by the wholesale price index, hit a 16-year high of 12.6% in the week ending August 9th, as the price of most food items rose. With a general election due by May 2009, the government has been keen to keep inflation at bay, but a host of administrative measures has so far failed to stem rising prices. In response, the government is thought to be considering banning futures trading of more agricultural commodities. It has already banned futures trading in eight such commodities, including rice and wheat; it maintains that the activity contributes to rising prices.

Meanwhile, there remains significant disagreement over the inflation outlook for the Indian economy. Barclays, a UK bank, said in August that it expected

A government panel foresees a slowing economy

Industrial production slows in June

Inflation hits a 16-year high in August

14 India


Indian wholesale price inflation to rise to 17% in September. The government, in contrast, has consistently said that prices will come down later in the year. As ever, the outcome of the harvest will be crucial. Indications as of mid-August were that India can expect a normal harvest this year.

Foreign direct investment (FDI) inflows in the first quarter (April-June) of 2008/09 soared to over US$10bn, raising the prospect that inflows into India might finally start to catch up with FDI into China. Until recently India was seen as an underperformer in attracting FDI, particularly compared with China, which has seen annual inflows of around US$50bn for about a decade. (In contrast, FDI into India totalled less than US$8bn as recently as 2005.) Until three years ago FDI as a percentage of GDP stood at only around 1%"a level which, according to economists, any economy with a comparative advantage should be able to exceed. On current trends, annual inflows will exceed the government!s target of US$35bn, or around 3% of GDP, in 2008/09. Most FDI into India goes to the services sector: telecoms, housing, construction activities, real estate and computer software and hardware are all particularly prolific attractors of investment, according to the RBI.

Merchandise exports grew by 24% year on year to US$14.7bn in June, while imports rose by 26% to US$24.5bn. As a result the trade deficit widened to US$30bn in the first quarter of 2008/09, a year-on-year increase of about 40%. The data confirm that India!s trade deficit"which reached a record high of 7.7% of GDP in 2007/08"is set to increase further in 2008/09. Meanwhile, RBI data show that the current-account deficit stood at 1.5% of GDP in 2007/08, a figure that is expected to double in 2008/09, according to the Economic Advisory Council.

Rising inflation, a slowing economy and a deteriorating external position pushed the rupee to a 17-month low in mid-August. Although a weaker local currency has boosted India!s export competitiveness, it has also raised the threat of increased imported inflation. The deterioration of India!s external accounts is mainly a function of the country!s thirst for oil and other primary commodities. However, many analysts now worry that sizeable remittances and revenue from software exports"which have traditionally offset the bulk of the trade deficit"might falter because of slowing economic growth in India!s major export markets, such as the US and the EU.

However, trade statistics from the Directorate General of Commercial Intelligence and Statistics show that there has been a major shift in the direction of India!s trade. The most significant development has been the decline in the importance of the US in India!s merchandise trade. Although the US remains India!s largest export market, its share of India!s total exports declined from 14.9% in 2006/07 to 13% in 2007/08. The next three biggest export destinations in 2007/08 were the UAE (9.7%), China (6.8%) and Singapore (4.3%). On the import side, China built on its position as India!s largest source of imports. China accounted for 11.3% of total imports in 2007/08, followed by Saudi Arabia (8.1%) and the UAE (5.6%)"both major oil producers.

India receives record FDI inflows in April-June

The trade deficit surges in April-June

India 15


Data and charts Annual data and forecast

P ro d uc t io n to rem o v e

2003a 2004a 2005a 2006a 2007 a 2008b 2009b

GDPc

Nominal GDP (US$ bn) 593.8 697.8 808.5 927.2 1,138.5 1,265.7 1,466.3

Nominal GDP (Rs bn) 27,546 31,494 35,803 41,458 47,132 52,613 59,897

Real GDP growth (%) 8.4 8.3 9.2 9.7 9.0 7.5 6.8

Expenditure on GDP (% real change)c

Private consumption 5.8 5.2 8.7 7.1 8.3 5.7 5.6

Government consumption 2.6 2.6 5.4 6.2 7.0 11.0 9.0

Gross fixed investment 13.7 18.9 17.4 15.1 13.8 11.2 9.5

Exports of goods & services 5.8 28.1 14.8 18.9 7.5 8.3 9.1

Imports of goods & services 16.8 16.0 45.6 24.5 7.7 9.0 10.5

Origin of GDP (% real change)c

Agriculture 10.0 0.0 5.9 3.8 4.5 3.4 2.8

Industry 7.4 10.3 10.1 11.0 8.5 6.5 7.5

Services 8.5 9.1 10.3 11.1 10.8 9.9 8.5

Population and income

Population (m) 1,049.7 1,065.1 1,080.3 1,095.4 1,110.4 d 1,125.4 1,140.2

GDP per head (US$ at PPP) 1,845 2,044 2,259 2,521 2,784 d 3,018 3,252

Fiscal indicators (% of GDP)c

Central government revenue 12.6 11.9 10.0 10.6 12.4 12.7 12.8

Central government expenditure 17.1 15.8 14.1 14.1 15.1 17.0 16.9

Central government balance -4.6 -3.9 -4.1 -3.4 -2.8 -4.3 -4.0

Net public debt 63.0 63.3 63.1 61.2 58.2 58.3 57.0

Prices and financial indicators

Exchange rate Rs:US$ (av) 46.58 45.32 44.10 45.31 41.35 41.67 41.00

Consumer prices (end-period; %) 3.8 3.8 4.2 6.2 6.4 7.1 6.2

Producer prices (av; %) 5.3 6.6 4.7 4.8 4.8 9.9 7.0

Stock of money M1 (% change) 16.2 20.7 18.9 19.2 17.2 d 14.1 14.7

Stock of money M2 (% change) 13.0 16.7 15.6 21.6 22.9 d 19.2 17.1

Lending interest rate (av; %)c 11.5 10.9 10.8 11.2 13.1 14.1 14.2

Current account (US$ m)

Trade balance -14,642 -28,036 -47,255 -62,078 -79,137 -103,717 -108,234

Goods: exports fob 60,895 77,939 102,175 122,963 151,331 181,423 203,628

Goods: imports fob -75,537 -105,975 -149,430 -185,041 -230,468 -285,140 -311,862

Services balance 6,478 13,076 19,978 31,040 36,846 33,571 36,348

Income balance -4,895 -4,052 -6,650 -5,546 -5,931 -7,916 -11,321

Current transfers balance 21,832 19,793 23,642 27,055 36,112 41,411 47,973

Current-account balance 8,773 781 -10,285 -9,529 -12,110 -36,651 -35,233

External debt (US$ m)

Debt stock 112,855 124,376 123,128 135,098 149,161 d 166,556 180,510

Debt service paid 20,650e 19,250e 24,335e 16,157e 19,923 d 21,549 24,069

Principal repayments 14,653e 15,874e 17,809e 10,019e 13,036 d 15,419 17,322

Interest 5,997 3,376 6,526 6,138 6,887 d 6,130 6,747

International reserves (US$ m)

Total international reserves 102,261 130,401 136,026 176,105 274,988 d 313,814 347,321

a Actual. b Economist Intelligence Unit forecasts. c Fiscal years (beginning April 1st of year indicated). d Economist Intelligence Unit estimate. e Includes medium- and long-term debt prepayments.

Source: IMF, International Financial Statistics.

16 India


Quarterly data P ro d uc t io n to rem o v e

2006 2007 2008

3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Central government finance (Rs m)

Revenue 1,118 1,234 1,519 675 1,692 1,600 1,871 828

Expenditure 1,205 1,318 1,997 1,799 1,380 1,564 2,393 1,689

Balance -87 -84 -477 -1,124 312 36 -522 -861

Output

GDP at constant 1999/2000 prices (Rs bn)a 7,224 8,254 8,648 7,699 7,885 8,991 9,413 n/a

Real GDP (% change, year on year) 10.9 9.7 10.0 9.2 9.2 8.9 8.8 n/a

Industrial production index (1993/94=100) 237.9 248.8 268.9 256.4 258.6 269.4 287.7 269.7

Industrial production (% change, year on year) 11.8 11.2 12.5 10.3 8.7 8.3 7.0 5.2

Prices

Consumer prices, industrial workers (2001=100) 124.3 127.0 127.3 129.0 132.7 134.0 135.3 139.0

Consumer prices (% change, year on year) 6.6 6.8 7.0 6.3 6.7 5.5 6.3 7.8

Wholesale prices (1993/94=100)

General index 205.7 208.7 209.2 212.0 214.2 215.8 221.2 231.9

Fuel 328.7 326.0 320.6 321.5 322.1 327.5 337.1 354.8

Manufactured goods 178.0 180.9 182.4 184.8 186.4 188.3 192.2 201.2

Financial indicators

Exchange rate Rs:US$ (av) 46.4 45.0 44.2 41.2 40.5 39.5 39.8 41.7

Exchange rate Rs:US$ (end-period) 46.0 44.2 43.6 40.8 39.7 39.4 40.0 43.0

Deposit rate (av; %) 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8

Lending rate (av; %) 11.4 11.5 12.3 13.3 13.3 13.3 13.2 n/a

3-month money market rate (av; %) 7.0 7.3 7.5 7.8 7.8 7.8 7.8 8.5

M1 (end-period; Rs bn)b 8,451 8,655 9,661 9,410 9,822 10,223 11,510 n/a

M1 (% change, year on year) 20.5 17.5 16.9 16.7 16.2 18.1 19.1 n/a

M3 (end-period; Rs bn)b 29,509 30,186 33,161 33,889 35,835 36,987 40,067 40,911

M3 (% change, year on year) 19.5 19.3 21.5 21.7 21.4 22.5 20.8 20.7

BSE Sensex (end-period; 1978/79=100) 12,454 13,787 13,072 14,651 17,291 20,287 15,644 13,462

BSE Sensex (% change, year on year) 38.1 49.4 18.6 52.8 60.6 65.2 30.5 -12.8

Sectoral trends

Production index (1993/94=100)

Manufacturing 254.9 264.9 288.0 273.7 277.7 288.5 308.9 289.0

Mining 145.0 166.8 182.6 162.6 155.7 176.0 192.0 170.2

Electricity 201.2 207.7 209.2 217.5 215.4 217.3 220.7 221.8

Foreign trade (US$ m)

Exports fob 31,932 30,217 34,297 35,033 37,523 40,181 44,862 42,846

Imports cif -46,124 -47,044 -45,042 -56,506 -55,053 -60,064 -66,605 -73,274

Trade balance -14,192 -16,827 -10,745 -21,473 -17,530 -19,883 -21,743 -30,428

Foreign payments (US$ m)b

Merchandise trade balance fob-fob -16,757 -16,527 -12,870 -20,701 -20,474 -25,092 -23,793 n/a

Services balance 6,918 7,234 10,079 8,729 7,608 10,430 10,783 n/a

Income balance -1,821 -1,832 -1,420 -1,847 -1,343 -1,321 -1,399 n/a

Net transfer payments 5,385 7,447 8,463 7,518 9,265 10,866 13,368 n/a

Current-account balance -6,275 -3,678 4,252 -6,301 -4,944 -5,117 -1,041 n/a

Reserves excl gold (end-period) 159,103 170,738 192,398 206,579 240,396 266,988 299,684 302,874

a At market prices. b Reserve Bank of India.

Sources: IMF, International Financial Statistics; Centre for Monitoring Indian Economy, Monthly Review of the Indian Economy; Financial Times; Reserve Bank of India.

India 17


Monthly data P ro d uc t io n to rem o v e

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exchange rate Rs:US$ (av) 2006 44.4 44.3 44.5 44.9 45.4 46.1 46.5 46.5 46.1 45.5 44.9 44.6

2007 44.3 44.2 44.0 42.1 40.8 40.8 40.4 40.8 40.3 39.5 39.4 39.4

2008 39.4 39.7 40.4 40.0 42.1 42.8 n/a n/a n/a n/a n/a n/a

Exchange rate Rs:US$ (end-period) 2006 44.1 44.4 44.6 45.0 46.4 45.1 46.5 46.5 46.0 45.0 44.8 44.2

2007 44.2 44.3 43.6 41.3 40.7 40.8 40.4 41.0 39.7 39.3 39.7 39.4

2008 39.4 39.9 40.0 40.5 42.6 43.0 n/a n/a n/a n/a n/a n/a

Money supply M1 (% change, year on year) 2006 21.9 24.2 27.9 26.4 21.6 19.3 20.1 19.8 20.5 20.3 20.4 17.5

2007 17.9 19.7 16.9 10.5 13.1 16.7 17.0 12.9 16.2 13.0 17.4 18.1

2008 20.1 15.7 19.1 17.5 20.5 n/a n/a n/a n/a n/a n/a n/a

Money supply M3 (% change, year on year) 2006 16.2 16.2 21.1 18.1 18.2 18.0 19.4 19.7 19.5 18.3 19.5 19.3

2007 20.4 21.8 21.5 19.8 19.6 21.7 21.7 20.7 21.4 22.6 22.9 22.5

2008 23.7 23.3 20.8 21.0 22.6 20.7 n/a n/a n/a n/a n/a n/a

Money market rate (end-period; %) 2006 6.50 6.50 6.50 6.50 6.50 6.75 7.00 7.00 7.00 7.25 7.25 7.25

2007 7.50 7.50 7.50 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75

2008 7.75 7.75 7.75 7.75 7.75 8.50 9.00 n/a n/a n/a n/a n/a

Lending rate (av; %) 2006 10.8 10.8 10.8 10.8 11.3 11.3 11.3 11.5 11.5 11.5 11.5 11.5

2007 12.0 12.5 12.5 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3 13.3

2008 13.3 13.3 13.0 12.8 n/a n/a n/a n/a n/a n/a n/a n/a

Industrial production (% change, year on year) 2006 8.5 8.8 8.9 9.9 11.7 9.7 13.2 10.3 12.0 4.5 15.8 13.4

2007 11.6 11.0 14.8 11.3 10.6 8.9 8.3 10.9 7.0 12.2 4.9 8.0

2008 6.2 9.5 5.5 6.2 4.1 5.4 n/a n/a n/a n/a n/a n/a

BSE Sensex stockmarket index (end-period; 1978/79=100) 2006 9,920 10,370 11,280 12,043 10,399 10,609 10,744 11,699 12,454 12,962 13,696 13,787

2007 14,091 12,938 13,072 13,872 14,544 14,651 15,551 15,319 17,291 19,838 19,363 20,287

2008 17,649 17,579 15,644 17,287 16,416 13,462 14,356 n/a n/a n/a n/a n/a

Consumer prices, industrial workers (% change, year on year; av) 2006 4.7 4.9 4.9 5.0 6.3 7.7 6.7 6.3 6.8 7.3 6.3 6.9

2007 6.7 7.6 6.7 6.7 6.6 5.7 6.5 7.3 6.4 5.5 5.5 5.5

2008 5.5 5.5 7.9 7.8 7.8 7.7 n/a n/a n/a n/a n/a n/a

Wholesale prices (% change, year on year; av) 2006 4.1 4.0 3.9 3.9 4.7 5.1 4.8 5.1 5.4 5.5 5.5 5.7

2007 6.4 6.4 6.6 6.3 5.5 4.5 4.7 4.1 3.5 3.1 3.3 3.8

2008 4.5 5.3 7.5 8.0 8.6 11.4 12.0 n/a n/a n/a n/a n/a

Total exports fob (US$ m) 2006 9,195 9,067 11,561 8,590 10,040 10,405 10,533 10,669 10,730 9,807 9,798 10,612

2007 10,908 10,527 12,862 10,953 12,210 11,870 12,454 12,614 12,455 14,588 12,768 12,825

2008 14,798 14,814 15,250 14,400 13,782 14,664 n/a n/a n/a n/a n/a n/a

Total imports cif (US$ m) 2006 12,894 12,841 14,314 12,535 14,307 14,044 14,542 14,753 16,829 16,725 15,342 14,977

2007 13,758 14,147 17,137 17,769 19,313 19,424 18,333 19,710 17,010 21,126 20,329 18,609

2008 22,550 20,758 23,297 24,274 24,548 24,452 n/a n/a n/a n/a n/a n/a

18 India


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Trade balance fob-cif (US$ m) 2006 -3,699 -3,774 -2,753 -3,945 -4,267 -3,639 -4,009 -4,084 -6,099 -6,918 -5,544 -4,365

2007 -2,850 -3,620 -4,275 -6,816 -7,103 -7,554 -5,879 -7,096 -4,555 -6,538 -7,561 -5,784

2008 -7,752 -5,944 -8,047 -9,874 -10,766 -9,788 n/a n/a n/a n/a n/a n/a

Foreign-exchange reserves excl gold (US$ m) 2006 134,687 136,640 145,854 154,363 156,845 156,732 158,020 159,708 159,103 161,326 168,150 170,738

2007 173,636 187,683 192,398 197,376 201,161 206,579 220,223 221,969 240,396 256,884 265,163 266,988

2008 284,034 291,677 299,684 304,725 305,407 302,874 n/a n/a n/a n/a n/a n/a

Sources: IMF, International Financial Statistics; Haver Analytics.

India 19


Annual trends charts P ro d uc t io n to rem o v e

Annual trends charts

Budget balance(% of GDP)

Current-account balance(% of GDP)

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.


1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0 World Asia (excl Japan) India

09080706050420032.0

3.0

4.0

5.0

6.0

7.0

8.0 World Asia (excl Japan) India

0908070605042003

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0 Asia (excl Japan) India

0908070605042003-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0 Asia (excl Japan) India

0908070605042003

Real GDP growth(% change)

Consumer price inflation(av; %)


Principal exports, 2006/07 (Apr-Mar)(US$ bn) (US$ bn)

Principal imports, 2006/07 (Apr-Mar)

Petroleum products18.6

Agricultural &allied products11.2

Textiles & clothing16.1

Engineeringgoods

26.2

Gems &jewellery15.6

Chemicals7.8

Machinery32.7

Petroleum &petroleum

products57.1

Gold & silver14.6

Electronicgoods15.9

20 India


Monthly trends charts P ro d uc t io n to rem o v e

Monthly trends charts

Price inflation(% change, year on year)

Interest rates(av; %)

Index of industrial activity(av; 1996=100)

Foreign trade (US$ m; goods only)

Foreign-exchange reserves(US$ m)

Exchange rate(RSD:US$; av; inverted scale)

90

100

110

120

130

140

150

AprJan08

OctJulAprJan07

OctJulAprJan06

OctJulAprJan2005

100,000

150,000

200,000

250,000

300,000

350,000

AprJan08

OctJulAprJan07

OctJulAprJan06

OctJulAprJan2005

2.0

4.0

6.0

8.0

10.0

12.0

14.0 Producer prices Consumer prices

JulAprJan08

OctJulAprJan07

OctJulAprJan06

OctJulAprJan2005

4.0

6.0

8.0

10.0

12.0

14.0 Lending rate Deposit rate

AprJan08

OctJulAprJan07

OctJulAprJan06

OctJulAprJan2005

Source: Economist Intelligence Unit.

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000 Balance Imports Exports

AprJan08

OctJulAprJan07

OctJulAprJan06

OctJulAprJan2005

Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.

47.0

46.0

45.0

44.0

43.0

42.0

41.0

40.0

39.0

AprJan08

OctJulAprJan07

OctJulAprJan06

OctJulAprJan2005

India 21


Country snapshot

Political structure

Republic of India

Federal republic, with 29 states and six union territories

The president, Pratibha Patil, was elected in July 2007 for a five-year term by the members of the central and state legislatures

The prime minister presides over a Council of Ministers chosen from the elected members of parliament

Bicameral. The Rajya Sabha (the upper house) has 245 members"233 elected by weighted votes of the elected members of parliament and the legislative assemblies of states and union territories, and 12 appointed by the president. The Lok Sabha (the lower house) has 545 members"543 elected from single-member constituencies (79 seats are reserved for "scheduled castes" and 40 for "scheduled tribes") and two representatives of Anglo-Indians appointed by the president

Unicameral or bicameral, with elected members; state governors are appointed by the president

Based on the 1950 constitution and English common law

The United Progressive Alliance (UPA), a coalition led by the Indian National Congress, gained the largest number of seats in the 2004 general election and formed a minority government

The last Lok Sabha election was completed on May 13th 2004; the next is due by May 2009

Indian National Congress; Bharatiya Janata Party (BJP); Communist Party of India (Marxist), or CPI (M); Samajwadi Party; Rashtriya Janata Dal (RJD); Bahujan Samaj Party (BSP); Dravida Munnetra Kazhagam (DMK); Shiv Sena; Biju Janata Dal (BJD); Communist Party of India; Nationalist Congress Party (NCP); Shiromani Akali Dal; Janata Dal (United)

Prime minister Manmohan Singh (Congress)

Agriculture, consumer affairs, food & public distribution Sharad Pawar (NCP) Commerce & industry Kamal Nath (Congress) Communications & information technology A Raja (DMK) Defence A K Antony (Congress) External affairs Pranab Mukherjee (Congress) Finance P Chidambaram (Congress) Home affairs Shivraj Patil (Congress) Information & broadcasting Priyaranjan Dasmunsi (Congress) Petroleum & natural gas Murli Deora (Congress) Railways Lalu Prasad (RJD) Urban development Jaipal Reddy (Congress)

Yaga Venugopal Reddy

Official name

Form of state

Head of state

The executive

National legislature

State legislatures

Legal system

National government

National election

Main political organisations

Central bank governor

Key ministers

india - economist intelligence unitgraphics.eiu.com/ukti/pdf/india.pdf · india september 2008...

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